a. For an interest rate of 18% per year compounded continuously, calculatethe effective monthly and annual interest rates.b. An investor requires an effective return of at least 15%. What is the minimum annual nominal rate that is acceptable for continuous compounding?

a. For an interest rate of 18% per year compounded continuously, calculatethe effective monthly and annual interest rates.b. An investor requires an effective return of at least 15%. What is the minimum annual nominal rate that is acceptable for continuous compounding?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 29P

See similar textbooks

Related questions

Q: What is the present value of $73,000 in 11 years if the interest rate is 8% compounded semiannually?…

A: The question is based on the concept of Financial Management.

Q: If the nominal rate of interest is 10% per annum and there is quarterly compounding, the effective…

A: The question is based on the concept for calculation of effective interest rate. Formula as :…

Q: An initial investment amount P, an annual interest rate r, and a time t are given. Find the future…

A: Future value is the compounded value of an initial sum of money. It includes the initial amount as…

Q: Suppose that an investment promises to pay a nominal 9.6 percent annual rate of interest. What is…

A: According to the rule, we will answer the first three subparts, for the remaining subparts, kindly…

Q: What is the simple interest on ₱ 30,000 for six months at a simple interest rate of 12% . What is…

A: Simple interest is interest on investment without any compounding. Compound interest is the interest…

Q: An investor has a principal amount of $P. If he desires a payout (return) of 0.1P each year, how…

A: PMT is calculated as: Note: Let principal amount be $1,000

Q: d it will become $ 6,000 at the end of 4 years, determine the nominal rate of interest and the…

A: The given problem can be solved using using RATE and EFFECT function in excel. RATE function…

Q: You are offered an investment with a quoted annual interest rate of 10% with weekly compounding of…

A: The effective annual interest rate is the actual interest rate that we get if we take the frequency…

Q: find the present value of $ 4000 due after five years if the interest rate is 10% compounded…

A: Present value is the current value of the future cash flows.

Q: A nominal interest rate of 11.333%, continuously compounded, yields an effective annual interest…

A: Effective annual rate = e^r - 1 where, r= nominal interest rate

Q: If the effective interest rate is 20% per annum, what is the Nominal Rate if it is? a.Compounded…

A: The effective annual rate of interest is the actual or the real rate of interest paid or received…

Q: 1. The following are exercises in future (terminal) values: a. At the end of three years, how much…

A: “Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only…

Q: earns an annual interest rate of 12 percent compounded Semi annually. What is the effective annual…

A: The given problem can be solved using EFFECT function in excel. EFFECT function computes effective…

Q: simple annual interest rate of 12% compounded semi-annually is an effective yield of

A: Effective annual yield = (1 + i/n)n - 1

Q: What is the annual effective interest rate equivalent to a nominal rate of 12 percent a year? Yanıt:

A: The effective rate of interest is an important technique in the case of multi-period compounding. If…

Q: Find the present and future values of an income stream of $3000 per year over a 15-year period,…

A: Present Value = Cash Flows * [ ( 1 - e-rt ) / ( er - 1 ) ] Future Value = Cash Flows * [ ( ert - 1 )…

Q: For the following amount at the given interest rate compounded continuously, find (a) the future…

A: Given, P = $5300 r = 3.4% = 3.4/100 = 0.034

Q: An account pays interest at a nominal rate of 3% per year. (a) Find the effective annual yield if…

A: Effective yield refers to return on bond that has its interest payments and is calculated by…

Q: What is the effective annual interest rate of an investment that pays 7.6% annual interest,…

A: The effective annual interest rate is defined as the real return on any interest paying investment…

Q: With an interest rate of 15 % how long does it take for an invest- ment to quadruple, if the…

A: Future Value formula with periodic compounding i.e. annual, monthly, semi-annual or quarterly…

Q: A KIMEP BANK quotes you and interest rate of 12,5% per annum with semiannual compounding. What is…

A: Interest Rate per annum with semi annual compounding(r) = 12.5% Effective Interest Rate compounded…

Q: Use the present value formula to find the present value of P30,000, if the interest rate is 16%…

A: Future value = P 30,000 Annual interest rate = 16% Number of compounding per year = 4 Number of…

Q: What will be the future worth of series of 15 annual $100 payments if the nominal annual interest…

A: An interest rate method in which current interest is computed by multiplying the interest rate by…

Q: An account pays interest at a nominal rate of 10% per year. Find the effective annual yield if…

A: In the above question we require to compute the effective annual yield from below details : Nominal…

Q: Which of the given interest rates and compounding periods would provide the best investment? (a) 10…

A: Given: Interest rate 10 1/2 percent per year, Interest rate 10 1/4 percent per year, Interest rate…

Q: Calculate the future value (FV) in 6 years time of £600 invested at 12% nominal annual interest, if…

A: Future value is the compounded value of a present sum of money compounded at a given interest rate…

Q: You are offered an investment with a quoted annual interest rate of 13% with quarterly compounding…

A: The given problem can be solved using EFFECT function in excel. EFFECT function computes effective…

Q: What is the difference in future value if $20,000 is invested at 5% over ten years, with one option…

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: A three-year CD offers a stated annual interest rate of 10 percent compounded quarterly. Given an…

A: The given problem can be solved using FV function in excel. FV function computes amount value in…

Q: If you are offered a nominal interest rate of 5% per annum, compounded monthly, what is the…

A: In this question we require to compute the effective annual interest rate from following details:…

Q: An effective annual interest rate of 35% has been determined with continuous compounding. What is…

A: The nominal interest rate refers to the interest rate before taking inflation into account. The…

Q: Calculate, to the nearest cent, the future value FV of an investment of $10,000 at the stated…

A: given, pv = $10,000 r= 0.2% n = 8 years = 8 x 12 = 96 months

Q: Suppose that you have opened a saving account with an initial deposit of $10,000. The account offers…

A: Initial deposit (P) = $10000 Final amount needed (F) = $15000 n = 10 years Let the annual interest =…

Q: What is the effective annual interest rate of an investment that pays 6.5% annual interest,…

A: EAR is the actual rate of return investment or loan generates after taking compounding into account.…

Q: What nominal interest rate is implied if you borrow 12,500 and repay 21,364.24 in three years with…

A: Using excel RATE function

Q: What is the effective annual rate on an investment that pays an interest rate of 8.25% continuously

A: in this we have to calculate the exponential form and find out effective interest rate.

Q: Suppose you have a loan of amount P, and you plan to pay off the debt in 10 equal annual…

A: Calculation of the PV of the seventh installment of loan is shown below: Here: P = Present Value X…

Q: You are offered an investment with a quoted annual interest rate of 6% with quarterly compounding of…

A: Interest rate (r) = 6% Number of compounding per year (m) = 4Tutor Dashboard - Course Hero

Q: he discount factor corresponding to a 3-year continuously compounded interest rate is 0.765667. What…

A: The effective rate is the after considering the impact of compounding and always more than actual…

Q: If the compounding frequency is monthly and the discount factor=0.62026, what is the value of the…

A: Let i(12) denote monthly interest rate Discount Factor = 1/(1+i(12)) 0.62026 = 1/(1+i(12)) i(12) =…

Q: What is the effective annual interest rate on this investment assuming that interest is compounded…

A: Effective Annual Interest Rate = (1 + (Nominal Interest rate / Number of compounding…

Q: (a) If the interest rate is 6% per year compounded quarterly, what is the effective annual interest…

A: Information Provided: Interest rate = 6% compounded quarterly NOTE: As per our policy, we only…

Q: 2. A credit institute quotes you an interest rate of 30% per annum with quarterly compounding. What…

A: Effective annual interest rate(EAR) refers to the real rate of return that we earn on our savings or…

Q: An investment is expected to pay a return of $5,250 semi-annually (i.e. at the end of each six…

A: Effective interest rate is the return an investor will earn during the span of their investment…

Question

a. For an interest rate of 18% per year compounded continuously, calculate
the effective monthly and annual interest rates.
b. An investor requires an effective return of at least 15%. What is the minimum annual nominal rate that is acceptable for continuous compounding?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

(1) What is the value at the end of Year 3 of the following cash flow stream if the quoted interest rate is 10%, compounded semiannually? (2) What is the PV of the same stream? (3) Is the stream an annuity? (4) An important rule is that you should never show a nominal rate on a time line or use it in calculations unless what condition holds? (Hint: Think of annual compounding, when INOM = EFF% = IPER.) What would be wrong with your answers to parts (1) and (2) if you used the nominal rate of 10% rather than the periodic rate, INOM/2 = 10%/2 = 5%?
Suppose that an investment promises to pay a nominal 9.6 percent annual rate ofinterest. What is the effective annual interest rate on this investment assuming thatinterest is compounded (a) annually? (b) semiannually? (c) quarterly? (d) monthly? (e)daily (365 days)? (f) Weekly?
An investor requires an effective return of at least 20 % per year. Find the minimum annual nominal rate that is acceptable for . i. monthly compounding li. quarterly compounding ii. semi annually compounding Iv. continuous compounding
Which of the given interest rates and compounding periods would provide the best investment?(a) 10 1/2 percent per year, compounded semiannually;(b) 10 1/4 percent per year, compounded quarterly;(c) 10 percent per year, compounded continuously.
Suppose that an investment promises to pay a nominal 9.6 percent annual rate of interest. What is the effective annual interest rate on this investment assuming that interest is compounded (a) annually? (b) semiannually? (c) quarterly? (d) monthly? (e) daily (365 days)? (f ) continuously? (Note: Report your answers accurate to four decimal places –e.g., 0.0987 or 9.87%.)
Suppose that an investment promises to pay a real 9% annual rate of interest and inflation rate is 3%. What is the effective annual interest rate on this investment assuming that interest is compounded quarterly?
If the nominal rate of interest is 10% per annum and there is quarterly compounding, the effective rate of interest will be: